DISSENTING OPINION OF JUDGE ZUPANČIČ

I regret that I cannot follow the majority judgment. For a number of reasons, only some of which are outlined in this dissent, it is my considered opinion that the outcome of this judgment by the ad hoc Chamber will, before the Grand Chamber, most certainly prove not to be in accordance with the letter and the spirit of the Convention.

If we begin with the Protocol No. 1, Article 1, paragraph 1 provision of the Convention, we see that its purpose is to protect bona fide possessions, legitimate expectations, arguable claims, etc. However, in this case we are, in the final analysis, safeguarding the speculative impact and the defects of a Communist state-run pyramid scheme of state-wide proportions. The scheme had been set up by the now defunct Yugoslav regime—then in dire need of hard currency funds. More importantly and from the moral point of view, since the LB bank and/or the Republic of Slovenia had not set up this Ponzi scheme, they are decidedly not the Madoffs of the story!

In the worst case scenario, in which the LB Bank and by implication the Republic of Slovenia were to be liable for the, to put it bluntly, “theft” of the depositors’ money –, it would still not make sense to reimburse the depositors with the absurd 12% on the initial deposits. Ethically speaking, this share of the reimbursement claim had been a speculation of the naïve, as usual, investors in the said Communist Ponzi scheme.

In banking and in similar succession situations, the territorial principle applied and implemented in order to reimburse debts owed in a particular country, mirrors the well-known economic consideration that the moneys received from depositors’ deposits are invested, in terms of the so-called ‘book money’, in the very territory in which the bank had been functioning as a debtor vis-à-vis the bank’s depositors, but especially as a creditor vis-à-vis numerous enterprises that the same bank had concurrently financed through its loans. The majority judgment, to put it differently, is in violation of the territorial principle.

The territorial principle maintains that the creditors – i.e., the savers of the bank – are to be reimbursed for their deposits in the region, area or territory in which the compounded commercial loans derived from their deposits were in fact extended to different enterprises. As put in the oft-cited and seminal article on the Yugoslav succession: “[...] the territorial principle clearly serves as the general rule on state succession related to tangible movable property.” (see, Carsten Stahn, Agreement on Succession Issues of the Former Socialist Federal Republic of Yugoslavia , 96 Am. J. Int’l L. 379 (2002)). We shall see straightaway why this is logical and therefore fair.

One must understand that all banks have always been functioning in this mode of speculative assessment of their future risks, based on which the depositors’ money is multiplied in a virtual fashion in extending the loans far beyond the capital of initial deposits (‘book money’). ‘Virtual’ here means that the ‘book money’ is literally borrowed from the future and is in this sense ‘virtual money’.

Thus the hard-currencies deposited and converted into the ‘book money’ were extended as credit to enterprises in the territory or to the individual in the territory that were willing and capable of repaying and to paying a normal interest rate on the loan they were taking from the bank. Of course, the interest paid may never be as high as 12%. This tends to prove that the said pyramid scheme – was just that.

This well-known mode of banking, however, is to be seen in the light of the then moribund Marković government and in the light of the impending financial and federal state breakdown, of which the very Communist hard-currency Ponzi scheme had been a clear warning sign for all to see and to take into account.

It is also obvious that any ‘run on the bank’ will immediately end in the bankruptcy of the bank. Every bank is essentially a speculative delay operation as is also true of every pyramid scheme, Ponzi scheme, etc. — except that in honest banking the loan–repayment cycle is realistic. Thus, for example, the Tudjman regime in Croatia abruptly closed down the LB Bank on its territory, which had implied – as it would for any bank – an immediate liquidation of the LB Bank. In such a situation, all the debts of all the depositors are instantly called in, whereas the loans are still in the long-term process of repayment. In other words, the closing of the bank by the fiat of the regime will cause an immediate default of the bank – especially vis-à-vis its individual depositors, creditors.

The territorial principle denotes the dynamic view of the banking function: it is guided by the idea that the determinative aspect of the bank’s function is its continual placement of its own loans in a particular territory. When the territory in question is therefore considered to be the main criterion for repayment, this has its own justified logic that cannot be comprehended from the simple private law perspective of Article 1, paragraph 1 of Protocol No. 1.

In the event that the bank is unable to repay its depositors, only depositors from that territory, irrespective of their citizenship, etc. will be covered by the state guarantee –, for the obvious macroeconomic reason that the book money originally derived from the depositors’ deposits has in fact been invested and has stayed in the territory in question. There it had stimulated economic activity, etc.

It thus makes sense, when the talk is of succession, that the successor states likewise cover their territories with their guarantees as the central authority, in this case the Central Bank in Belgrade, had not fulfilled its own guaranteeing function. If such is the logic, it is easy to understand that it also makes sense for the six successor States to underwrite their depositors’ claims – each one on its own territory.

This is in fact what happened at least to some extent, i.e., in so far as Croatia has largely reimbursed the depositors of the LB Bank on its territory. One might ask the question whether the State of Croatia has done this out of pure good heartedness vis-à-vis their own citizens –, or has there perhaps been in this move a built-in macroeconomic justice, which the Croatian state when coming into being has duly taken into consideration. In other words, were it not for the logic of the territorial principle in the first place, why would the Croatian state take over part of the debt of LB Bank for all those citizens who wished to be reimbursed by the Croatian state?

In any event, the logic of the territorial principle is obvious on both sides of this case. We wish to reiterate the simple idea that individualised justice, as considered by Protocol No. 1, has its fully compatible complement in Aristotle’s distributive justice built into the territorial principle.

In pectore , I have for many years harboured another question because there is another travesty in this case: viz. the issue in the present adversary setting is thoroughly miscomprehended. The dispute is confused because this is not, as it ought to be, an interstate case. Unmistakeably, the atypical private law issue would in the interstate adversary backdrop have rightly developed into an expected, natural, and logical interstate succession issue. This would result in a far clearer perspective on the case. Why is it that not one of the respondent States has filed, in the European Court of Human Rights, an interstate action against the Republic of Slovenia? Why is it that the respondent States hide behind the individual complainants when everything points to the fact that these are succession questions? I think the answer is clear.

Another of my major objections to this majority judgment derives from the actual composition of the present ad hoc Chamber, in which four of the members, i.e., a simple majority at least, are from the creditor states, one of the members is from a fellow debtor state, whereas there are only two other members of the panel who are not, in one sense or another, national judges in the case. We understand perfectly well the usual procedural logic of the Convention to the effect that the national judge of the country concerned must in all cases be a member of the panel in order to facilitate the assessment of the case. However, in a situation in which we have seven successor States addressing what is essentially a succession problem, the logic of the presence of the national judge in each particular case will result in an ad hoc composition, as in the present one, in which the plaintiffs’ ‘representatives’ have a clear majority over the influence of the defendants’ ‘representatives’. This is absurd since it was discernible from the very beginning that the interests of the plaintiffs will instruct the outcome of the ad hoc casu majority judgment. Fortunately, the Convention’s sacrosanct separate opinion philosophy will here save the day in as much as the case clearly must be examined in the Grand Chamber. In the Grand Chamber, the composition with the presence of all national judges will be attenuated in the group of 17 judges, i.e., the bearing of the plaintiff’s interests will likewise be less decisive. I wish to emphasise, that I have no doubts about my colleagues’ impartiality, while keeping in mind of course that conscious impartiality when it comes to contemplating national interests has its own objective confines. However, even if it were not for the numeric prevalence in the ad hoc casu panel as such, the so-called ‘appearances’ will make it obvious that such a panel will not, to the outside world, appear objective and impartial.

For years I have maintained, and still do, that the issue in this case is best documented in the now famous Professor Jürgen’s Report ( Repayment of the deposits of foreign exchange made in the offices of the Ljubljanska Banka not on the territory of Slovenia, 1977-1991 , Doc. 10135, 14 April 2004, Report, Committee on Legal Affairs and Human Rights, Rapporteur: Mr Erik Jürgens, Netherlands). The sense of the report, at 20 & 21, is as follows:

“The economic conclusion must be that the original deposits had, in 1991, in fact ceased to exist. The depositors had, attracted by the high interest rates, run a risk by depositing their money in banks within the SFRY. When this risk was recognised, they were reassured by the guarantee given by the SFRY government that the deposits would be repaid with accumulated interest. But this guarantee evaporated at the moment the SFRY was dissolved, unless and inasmuch the successor states were willing to take over this guarantee. This was duly realised, but the different successor states did it in different ways. Slovenia [...] took over the guarantee for FE savings deposited in banks on its territory, expecting the other republics to do the same.”

The timing of this judgment is particularly bad because negotiations between Slovenia and Croatia at least are now moving forward and are run by expert bankers of the two countries who understand the problem. The judgment will be misunderstood as final and it will be as a matter of course and on both sides politically misinterpreted.

If one considers paragraph 58 of the judgment in which the Slovenian government criticised Croatia for having refused to resolve the issue by IMF arbitration in 1999; for having refused to discuss it in the standing joint committee; for having agreed to continue Bank for International Settlements negotiations, allegedly under the pressure of the EU only in 2010; for having reneged on that offer after the closure of the EU accession negotiations in 2011; and lastly for making it impossible for LB Bank Zagreb Branch to engage in regular banking activities and thus generate additional assets (see para. 58 of the majority judgment). These allegations of the Slovenian government have not been properly answered by the Croatian government, neither have they been addressed by the majority judgment. It follows inexorably that the villain in this story is not Slovenia, because Slovenia has tried at least five times to decently negotiate this succession problem with Croatia – but to no avail. Of course, it is impossible to know whether this time, despite everything, the Croatian government is serious or not. One would hope at least that this time the negotiations could in fact move forward because, as pointed out above, they are now run by two experts who understand the problem. Moreover, Croatia’s entry into the European Union is conditioned upon the success of these negotiations. We reiterate that the judgment is badly timed because it will create a political impression as to who is now in the winning position, despite the fact that the case might be going to the Grand Chamber, and needs no longer to show benevolence and a constructive attitude in the ongoing negotiations.

In this context, we must call attention to the essence of the Kovačič case judgment, which was before the Grand Chamber on a pure technicality, and carries its real message in the concurring opinion of the former judge, Professor George Ress, a world-renowned specialist in international law, i.e., a specialist on succession. In Kovačič , the question had not been addressed in the judgment, but Professor Ress had articulated the message in his concurring opinion. That message was essentially the same as the one found in the Jürgen report, i.e., that the issue cannot be properly resolved by a judgment between private parties and the State. Unless this was to be an interstate case, it can only be resolved by negotiations in the context of a future succession agreement.

[1] . The concept of “social ownership”, while it does exist in other countries, was particularly highly developed in the SFRY (see Medjad, The fate of the Yugoslav model: A case against legal conformity , American Journal of Comparative Law 52/1 (2004), pp. 287-319).

[2] . Zakon o deviznom poslovanju , Official Gazette of the SFRY nos. 66/85, 13/86, 71/86, 2/87, 3/88, 59/88, 85/89, 27/90, 82/90 and 22/91.

[3] . Zakon o bankama i drugim finansijskim organizacijama , Official Gazette of the SFRY nos. 10/89, 40/89, 87/89, 18/90, 72/90 and 79/90.

[4] Zakon o sanaciji, stečaju i likvidaciji banaka i drugih finansijskih organizacija , Official Gazette of the SFRY nos. 84/89 and 63/90.

[5] . Odluka o načinu izvršavanja obaveza Federacije po osnovu jemstva za devize na deviznim računima i deviznim štednim ulozima građana, građanskih pravnih lica i stranih fizičkih lica , Official Gazette of the SFRY no. 27/90.

[6] . Zakon o obligacionim odnosima , Official Gazette of the SFRY nos. 29/78, 39/85, 45/89 and 57/89.

[7] . Zakon o deviznom poslovanju i kreditnim odnosima , Official Gazette of the SFRY nos. 15/77, 61/82, 77/82, 34/83, 70/83 and 71/84.

[8] . Odluka o načinu na koji ovlašćene banke izvršavaju naloge za plaćanje domaćih fizičkih lica devizama sa njihovih deviznih računa i deviznih štednih uloga , Official Gazette of the SFRY nos. 28/91, 34/91, 64/91 and 9/92.

[9] . Odluka o načinu vođenja deviznog računa i deviznog štednog uloga domaćeg i stranog fizičkog lica , Official Gazette of the SFRY nos. 6/91, 30/91, 36/91 and 25/92.

[10] . Uredba sa zakonskom snagom o preuzimanju i primjenjivanju saveznih zakona koji se u Bosni i Hercegovini primjenjuju kao republički zakoni , Official Gazette of the Republic of Bosnia and Herzegovina no. 2/92.

[11] . A copy thereof was provided by the Bosnian-Herzegovinian authorities.

[12] . Odluka o uslovima i načinu isplata dinara po osnovu definitivne prodaje devizne štednje domaćih fizičkih lica i korišćenju deviza sa deviznih računa i deviznih štednih uloga domaćih fizičkih lica za potrebe liječenja i plaćanja školarine u inostranstvu , Official Gazette of the Republic of Bosnia and Herzegovina no. 4/93; Odluka o uslovima i načinu davanja kratkoročnih kredita bankama na osnovu definitivne prodaje deponovane devizne štednje građana i efektivno prodatih deviza od strane građana , Official Gazette of the Republika Srpska nos. 10/93 and 2/94; and Odluka o ciljevima i zadacima monetarno-kreditne politike u 1995, Official Gazette of the Republic of Bosnia and Herzegovina nos. 11/95 and 19/95.

[13] . Zakon o utvrđivanju i realizaciji potraživanja građana u postupku privatizacije , Official Gazette of the FBH nos. 27/97, 8/99, 45/00, 54/00, 32/01, 27/02, 57/03, 44/04, 79/07 and 65/09.

[14] . Uredba o ostvarivanju potraživanja lica koja su imala deviznu štednju u bankama na teritoriju Federacije, a nisu imala prebivalište na teritoriju Federacije, Official Gazette of the FBH no. 44/99.

[15] . Zakon o utvrđivanju i načinu izmirenja unutrašnjih obaveza Federacije , Official Gazette of the FBH nos. 66/04, 49/05, 35/06, 31/08, 32/09 and 65/09.

[16] . Zakon o izmirenju obaveza po osnovu računa stare devizne štednje , Official Gazette of Bosnia and Herzegovina nos. 28/06, 76/06 and 72/07.

[17] . Zakon o postupku upisa pravnih lica u sudski registar , Official Gazette of the FBH nos. 4/00, 49/00, 32/01, 19/03 and 50/03.

[18] . Zakon o pretvaranju deviznih depozita građana u javni dug Republike Hrvatske , Official Gazette of the Republic of Croatia no. 106/93.

[19] . Pravilnik o utvrđivanju uvjeta i načina pod kojima građani mogu prenijeti svoju deviznu štednju s organizacijske jedinice banke čije je sjedište izvan Republike Hrvatske na banke u Republici Hrvatskoj , Official Gazette of the Republic of Croatia no. 19/94.

[20] . A copy thereof was provided by the Slovenian Government (annexes nos. 273-74).

[21] . Odluka o uslovima i načinu davanja kratkoročnih kredita bankama na osnovu definitivne prodaje deponovane devizne štednje građana , Official Gazette of the Federal Republic of Yugoslavia nos. 42/93, 49/93, 71/93 and 77/93; Odluka o uslovima i načinu isplate dela devizne štednje građana koja je deponovana kod NBJ , Official Gazette nos. 42/94, 44/94 and 50/94; Odluka o uslovima i načinu isplate dela devizne štednje građana koja je deponovana kod NBJ , Official Gazette nos. 10/95, 52/95, 58/95, 20/96, 24/96 and 30/96; and Odluka o privremenom obezbeđivanju i načinu i uslovima isplate sredstava ovlašćenim bankama na ime dinarske protivvrednosti dela devizne štednje deponovane kod NBJ isplaćene građanima za određene namene , Official Gazette nos. 41/96, 21/98 and 4/99.

[22] . Zakon o izmirenju obaveza po osnovu devizne štednje građana , Official Gazette of the Federal Republic of Yugoslavia nos. 59/98, 44/99 and 53/01.

[23] . Zakon o regulisanju javnog duga Savezne Republike Jugoslavije po osnovu devizne štednje građana , Official Gazette of the Federal Republic of Yugoslavia no. 36/02.

[24] . Zakon o deviznom poslovanju , Official Gazette of the Federal Republic of Yugoslavia nos. 12/95, 29/97, 44/99, 74/99 and 73/00.

[25] . Ustavni zakon za izvedbo Temeljne ustavne listine o samostojnosti in neodvisnosti RS , Official Gazette of the Republic of Slovenia no. 1/91.

[26] . Zakon o poravnavanju obveznosti iz neizplačanih deviznih vlog , Official Gazette of the Republic of Slovenia no. 7/93.

[27] . Zakon o ustavnem sodišču (uradno prečiščeno besedilo) , Official Gazette of the Republic of Slovenia no. 64/07.

[28] . A copy thereof was provided by the Bosnian-Herzegovinian authorities.

[29] . Ustavni zakon o dopolnitvah ustavnega zakona za izvedbo Temeljne ustavne listine o samostojnosti in neodvisnosti Republike Slovenije , Official Gazette of the Republic of Slovenia no. 45/94.

[30] . Zakon o dopolnitvah zakona o Skladu Republike Slovenije za sukcesijo , Official Gazette of the Republic of Slovenia no. 40/97.

[31] . The decision published in the Official Gazette of the Republic of Slovenia no. 105/09.

[32] . Закон за преземање на депонираните девизни влогови на граѓаните од страна на Република Македонија , “Official Gazette of the Republic of Macedonia” no. 26/92; Закон за гаранција на Република Македонија за депонираните девизни влогови на граѓаните и за обезбедување на средства и начин за исплата на депонираните девизни влогови на граѓаните во 1993 и 1994 , Official Gazette nos. 31/93, 70/94, 65/95 and 71/96; and Закон за начинот и постапката на исплатување на депонираните девизни влогови на граѓаните по кои гарант е Република Македонија , Official Gazette nos. 32/00, 108/00, 4/02 and 42/03.

[33] . In 1983 the SFRY signed that treaty. In 2001 the Federal Republic of Yugoslavia lodged an instrument advising its intent to maintain the signature made by the SFRY.

[34] . The Commission was set up by the European Community and its Member States in 1991. It handed down fifteen opinions pertaining to legal issues arising from the dissolution of the SFRY (see International Law Reports 92 (1993), pp. 162-208, and 96 (1994), pp. 719-37).

[35] . See the travaux préparatoires of the Agreement provided by the Slovenian Government (annexes nos. 265-70).

[36] . A copy of that letter was provided by the Croatian Government.

[37] . A copy of that letter was provided by the Croatian Government.